Vietnam: A Tiger Once More

After years of unfulfilled economic promise, Vietnam is—once again—attracting strong investor interest from private equity. 

Vietnam may be ruled by an authoritarian communist regime, but it is the most pro-capitalist country on earth, according to a poll by the Pew Research Center. The poll of 45 nations in late 2014 found that 95 percent of Vietnamese people support a free-market economy. No other country in the poll topped 90 percent. In the U.S., just 70 percent agreed that a free-market economy is the best economy.

The Vietnamese government appears to be listening. It has passed a new law, Decree 60, which allows foreign ownership of up to 60 percent in Vietnamese public companies in many industries.

And as the door opens in Vietnam, private equity is stepping in.

“There is certainly strong private equity interest in Vietnam and more optimism than there was,” says Kenneth Atkinson, executive chairman of Grant Thornton Vietnam. “Most firms are optimistic about future investment opportunities in the country.”

In the latest edition of Grant Thornton Vietnam’s Private Equity Survey, released at the end of July, 72 percent of private equity professionals say they hold a positive view of the Vietnamese economy, while 86 percent say they’re looking to increase their investment opportunities in Vietnam—a 14 percent rise since the fourth quarter of 2014. The majority of firms polled say they expect to be net buyers of assets in the next 12 months.

Templeton and KKR have been active in the country. KKR recently doubled its investment in the consumer products sector. Standard Chartered has made its first real entry into Vietnam, a major PE deal with restaurant chain Golden Gate. On the home front, Vietnam Investments Group has raised a significant additional fund, and Mekong Capital, a Vietnamese private equity firm, just raised its fourth fund.

The sectors in Vietnam most appealing to private equity are oil and gas, food and beverage, clean tech, real estate, and education. “Food and beverage, the main attraction is the age profile of the population and the growing middle class,” Atkinson says. “For education, it’s again the age profile, rising income, and the importance placed on education by families as a whole. Clean tech, it’s changes in regulations that are making alternative energy projects viable. And the reason for the interest in the oil and gas is not clear, although there are major investments taking place in oil refining, and Vietnam does have significant reserves of natural gas.”

In the past, private equity investment in Vietnam has fluctuated markedly. It crested to $400M in 2011 and 2013 but came in under $100M in every other year since 2009, according to data from the Emerging Markets Private Equity Association. There was $497M of PE investment in 2013, as Vietnam outdistanced other Asian frontier economies such as Bangladesh, Sri Lanka, and Myanmar.

“Vietnam shares a lot of characteristics with other frontier economies,” Atkinson says. “But it has a more established legal system and a number of free-trade agreements that are being concluded, like the Trans-Pacific Partnership, which are helping draw manufacturers. Vietnam also has a highly educated population compared to other frontier economies, with a literacy rate of more than 90 percent.”

The biggest obstacle by far is corruption, Atkinson adds, noting that 83 percent of private equity firms in the Grant Thornton survey said it’s a problem, along with red tape and government bureaucracy.

In a recent Bloomberg interview, Vikram Nehru, senior associate in the Asia Program and Bakrie Chair in Southeast Asian Studies at the Carnegie Endowment for International Peace in Washington, observed that Vietnam “has all the ingredients for rapid growth if it can address the challenges in the state sector. It is quite possible that Vietnam could become the fastest-growing economy in Asia.”